Investors helped Ireland's recovery from the financial crash, but loopholes that allow tax avoidance must close

Vulture funds have played a vital part in Ireland's recovery from the financial crisis. The initial entry into the market place of the vulture funds as buyers for under-performing loans has helped develop a market for those loans, and there is no doubt the emergence of this market was key to the recovery in property prices and capital, in particular, by Nama.

Vulture funds have played a vital part in Ireland's recovery from the financial crisis. The initial entry into the market place of the vulture funds as buyers for under-performing loans has helped develop a market for those loans, and there is no doubt the emergence of this market was key to the recovery in property prices and capital, in particular, by Nama.

The effect of this development in the market place has enabled loans to be moved on from banks, freeing them to return to their performing and profitable business.

Given that Brexit has now happened, the need for capital in the marketplace is vital to ensure progress continues to be made in this very uncertain environment.

Section 110 Companies used by some of the vulture funds that acquired distressed loans and/or assets have been the subject of a lot of recent media coverage because they have paid little Irish tax on income received and on gains made.

These funds are funded by foreign private equity which was made available to purchase loans and distressed assets in Ireland when there were no local or domestic funds/banks able or capable to take on such non-performing assets.

Such funds are migratory and transact where the market has a need and suitable returns on equity/funds can be made. No one envisaged the level of activity in the purchase of distressed loans/assets as witnessed in recent years.

Section 110 was established to attract certain activity in Ireland. However, this structure is now being exploited (in a legal manner).

There were 124 Section 110 companies established in Ireland in 2010, rising to 404 last year.

Nobody expects these funds to provide capital with no return. Unless returns are made to investors in these funds they will not survive in business. A key question is what taxes should be paid on profits made in Ireland and where such tax should be paid.

It has been suggested that such transactions are not in scope of the legislation. If this is so then they can be challenged. It was reported in the Sunday Independent on July 24 that the Revenue Commissioners were investigating at least 40 Section 110 Special Purpose Vehicles (SPVs).

Section 110s that have been used by some of these funds have paid little Irish tax on profits made by them. The EU has sought actions deterring the shifting of profits by corporate groups in low or no tax countries. If we do not take action, our international reputation is tarnished.

The Irish Minister for Finance is well aware of this risk and has stated recently that: "Should Revenue's investigations uncover tax avoidance schemes or abuse which erodes the tax base and causes reputational issues for the State, then appropriate action will be taken and any necessary legislative changes that may be required will be put forward for consideration".

The Revenue and Department of Finance need to address this and amend the Tax Acts to close off any loopholes being exploited which are not contemplated by Section 110.

Paul Wyse is a fellow of the Chartered Accountants Ireland and is managing director of Smith & Williamson's Dublin office